The group ended yesterday down 3.5 per cent, or 24.6p, at 673.2p, as investors worried that expansion at the UK’s busiest airport would fuel competition.

‘The green light is logically aimed at relieving pressure on an airport which has continued to grow,’ said Michael van Dulken, an analyst at Accendo Markets.

‘The flip side for IAG, however, is that expansion may end up putting pressure on both IAG and peers – typically flag carriers, which have benefited from being able to charge a premium for using Heathrow – as new capacity makes each slot less valuable and more economically viable.’

Descent: The morning after MPs resoundingly backed the controversial third runway at Heathrow, shares in British Airways’ parent IAG began to hit turbulence

Budget rival Easyjet initially looked to be eking out gains from the Heathrow decision, as it rose in early trading.

Easyjet had previously eschewed Heathrow due to capacity and cost, but its commercial and strategy officer Robert Carey confirmed earlier this month that it could fly in if a third runway was built.

However, Easyjet’s shares succumbed later in the day, descending 1.2 per cent, or 21.5p, to 1702.5p, amid warnings from analysts that the new capacity could be quickly hoovered up.

Despite falling airline stocks, the FTSE 100 ended the day up 0.37 per cent, as Carnival recovered after sinking the day before. The cruise company’s shares sailed up 3.1 per cent, or 132p, to 4347p.

The 28.08 point rise for the FTSE 100 to 7537.92 was not quite enough to haul the blue-chip index back to the levels seen before Monday’s sell-off.

Stock Watch – Cluff Natural Resources

Oil explorer Cluff Natural Resources had the wind knocked out of it yesterday as it announced it was considering raising funds.

Cluff, which wants the extra cash to help it develop ten oil and gas blocks it has acquired in the North Sea, did not say how much it planned to raise through the new equity issue.

A spokesman added Cluff was only ‘considering the merits’ at the moment.

But this was enough to send its shares down 16 per cent, or 0.4p, to 2.1p yesterday.

Quilter, the wealth manager which made rapid gains in its first day of trading on Monday, lost some of its energy and ended the day down 0.5 per cent, or 0.8p, at 152.8p.

Shares in clothing store Next performed well as the firm found itself in fashion with brokers at HSBC. Analysts lifted its target price to 5550p from 4600p, helping it rise 2.4 per cent, or 144p, during the trading session to 6106p.

Outside the index of the UK’s largest companies, estate agent Countrywide – which owns Hamptons and Bairstow Eves – compounded the 31 per cent slump it suffered after Monday’s profit warning.

Countrywide fell another 10.9 per cent, or 6p, to 49p, amid rumours that it was in talks with private equity firm Tosca Fund to sell Hamptons and property consultancy Lambert Smith Hampton.

Both Tosca and Countrywide denied that talks were under way.

Oil and gas company Cairn Energy rocketed for the fifth day in a row, ending up 5.2 per cent, or 12.4p, at 250.6p.

The firm has been generally on the rise since it revealed it had bought a 50 per cent stake in the Agar-Plantain oilfields in the North Sea earlier this month.

Knights, which plans to become the latest law firm to float on the stock exchange on Friday, priced its initial public offering at 145p per share, the largest of its kind for a law firm. The listing price values the entire firm at £103.5million and will raise £50million.

Chairman Bal Johal and other management, including Karl Bamford, Joanne Beech and Mark Beech, will pocket a total of £20million between them.

The pound crept lower against the dollar yesterday after Bank of England policymaker Jonathan Haskel suggested to the Treasury select committee that interest rates could rise more gradually.

Sterling stood at $1.32 yesterday evening following Haskel’s comments to MPs that there may be more ‘slack’, or ‘unemployed resources’, in the economy than currently considered.